What I mean is that a vacuum leak at the modulator line can be causing the driveability problem, as well as the hard shift (low modulator vacuum=hard shift, high vacuum=soft shift, so what I would recommend is seeing if there is vacuum to the modulator at all before attempting to adjust the modulator. Adjusting the modulator will be useless if there is no vacuum to it. Possibly just the vacuum line for the modulator has come unplugged from the manifold.
By stating that maybe the gauge is wrong, I didn't mean to give the impression that the gauge itself is defective, simply that the gauge is reading lower than the actual engine temp. I agree the most likely cause for an inaccurate gauge would be the sensor, but it is pretty easy to test the sensor. The best way to test it is to remove it and allow it to cool (or warm) to a known temp, usually just "room temp", then test the ohm value of the sensor and compare it to the resistance chart for the sensor. If this passes, then a resistance value can be fed into the gauge electrical connector and the accuracy of the gauge compared to the known value fed into the harness.